Question

How will planned investment spending change as the following events occur? The interest rate falls as a result of Federal Reserve policy. The U.S. Environmental Protection Agency (EPA) decrees that corporations must upgrade or replace their machinery in order to reduce their emissions of sulfur dioxide. Baby boomers begin to retire in large numbers and reduce their savings, resulting in higher interest rates.

Answer 1

Answer:

a. planned investment spending increases

b. planned investment spending increases

c. fall in planned investment spending.  

Explanation:

a. The interst rate increases as a result of Federal Reserve policy which means interest rate on savings increases. As the opportunity cost of holding cash increases, people save more which results in more funds available and so planned investment spending increases.

b. as due to the law, corporations must upgrade or replace their machine in order to reduce their emissions. In other words, it means corporations needs to invest more on new machinery. So, this law results in increased planned investment spending.

c. As becasue baby boomers begin to retire in large numbers and reduce their savings, the situation provoques a  fall in planned investment spending.